How to Deal With Project Risks

It doesn't matter whether you are managing a software project or an industrial project, the risk is always there. Anything can happen to the project, maybe some of your resources fall sick during an important milestone which needs to be completed soon. Or one of your processing machine stops functioning all of a sudden while you are in the midst of completing a big assignment. And what about force majeure, can you plan before to deal with a typhoon, earthquake or any similar nature's fury which may affect your work badly?

The risks to the projects are inevitable; some risks are serious threats to your project and can force you to abort your mission abruptly. While some risks are threats, there are opportunities too. All risk are not threat, there are chances that you can leverage certain risks to gain certain benefits from that, those type of risk are called opportunity.

Case Study

Let's assume that you are an owner of a small scale industry where traditional banana chips are being produced. You got a huge order from one big client and all your resources are occupied to complete that project.

One fine blue Monday, another big client walks down to your factory and shows his interest to award you another huge assignment which needs to be delivered soon. They can't wait as they need the banana chips packets for one of their important ceremony which is scheduled to be held next month. They are in a hurry, so if you are not available then they may give the assignment to someone else.

Problem Statement

You do not want to lose the customer as the chances are high that you will get more such orders from him in future if you take this order now and successfully delivered it in the specified time duration. But at the same time, you do not afford to upset the current customer by neglecting his orders. The current assignment should be completed on time by maintaining the quality to make the client happy.

Now, what you will do in this situation? Let's find out the solutions.

Solution

This is a typical example where both the threats and opportunities are connected in your decision. If you accept both the orders, then the risk is that you may not complete both the orders in time with existing manpower and other resources.

But if you hire more resources, the chances are that you may not get skilled resources in a shorter period of time and thus the quality of your products may not reach to its optimal levels. That is a big risk that the low-quality products can be damaged your credibility and you may end losing both the customers.

So, the best solution can be completing the first order soon and then go for the second one. You need to motivate your existing resources with some bonus package, goodies and fair compensation for working extra hours. So, that you can complete the current assignments much before the deadline, and then take the second order and complete that one too on time.

Have you noticed the opportunities here? First big gain from this is that you will get two big clients who can give you more assignments in future to boost your business. Secondly, you can able to judge your resource's capacity and capabilities, which can enable you to take correct decisions in future.

So, as we discussed, risk can turn to opportunity if you know how to deal with it. There are other risks associated with a project that cannot be dealt runtime. It is necessary to have a proper risk response plan to chalk out the proper strategies for the probable risks before it actually occurs. A risk response plan has the strategies to reduce or eliminate the impacts of the threats and at the same time plan to exploit the opportunities to get maximum benefit out of it.

As we are discussing strategies for both the threats and opportunities, let's see how you should approach each of them.

Ways to Deal Project Threats

According to risk experts and also suggested in PMBOK, there are three basic strategies to deal with project threats. These are:

Transfer the threats to deal together with other vendors, consultants or organizations

Avoid the occurrence of the threats well before it appears with proper planning and taking other measures

Mitigate the threats with your super strategies when it occurs

Accept the threat when it occurs when you can't do anything. This strategy can be used in case of opportunity too

Let's discuss each of them in detail to understand the various strategies to handle the negative risks i.e. threats to your project.

Transferring the Risk Using Insurance | Source

Transferring the Threats

While identifying and assessing the risks, you may found some threats which cannot be handled by you when it occurs. So, for those threats, it's better to assign somebody else who is better equipped to deal with them. That can be an organization, vendor or an expert who is capable of dealing with those threats. One thing to remember here that, by transferring the risk to others, your responsibilities doesn't end there. You are equally responsible for the work.

A common example of this can be buying an insurance policy for the machinery used in your work. The insurance company holds the responsibility to cover the losses in case of any mishaps by paying the insured amount as per the term and conditions. But you have also held the responsibilities to take care of your machines.

Avoiding the Threat

This strategy can be used when you know that the impact of certain threats can be avoided by modifying the project plan, changing or reducing the project scope or project schedule. This is a defensive technique where you do the planning much early to avoid the occurrence of those threats.

An example of this strategy can be managing the resources as per project's milestones. You found that some of your team members are planning for taking leaves when an important milestone is scheduled to release. So, either you have to convince the team members to take the leaves some other time or you will postpone or prepone the release of the milestone by modifying your project schedule.

Accepting the Threats

Sometimes it is better to accept the risk either actively or passively., that's because you don't have the required potential skills to deal with such threats. Also, when the cost required to deal with such threats shooting up your budgeted cost, it's better to accept the threats. Passive acceptance means you will do nothing except noting down the impacts in your project documents when those threats occurred.

Mitigate the Threat

This is the normal technique to mitigate the risk whenever it occurs. So, you need to identify those risks at the planning stage and then create the proper strategies to reduce the impact of those threats to an acceptable limit at which you can able to deal with them when occurs.

Ways to get Advantages From the Opportunities

It is important to deal with the threats with proper strategies to eliminate their impact on the project. And at the same time, it is also necessary to take the advantages of the opportunities which can be beneficial for your project.

You need to know the ways to deal with those opportunities when that occurs to avail the desired benefits from that. Actually, in other words, you can say that opportunities are also the type of risk but when to deal with proper ways they become turns to opportunity having the positive impact on your project.

Let's discuss the strategies to deal with such opportunities.

Intensify the Chances of Opportunities

You need to act smartly to increase the positive impacts from risks to get benefitted. For example, as we discussed at the beginning in the case study, if you able to complete the current project quickly you will fetch another order. Though completing the project before the scheduled deadlines is quite risky but the opportunity is there to get another big project.

Use the Opportunities

You need to plan in such a way that you must seize the chance to realize the opportunity when it comes. As per our earlier example, you know that the new project can be grabbed only when you complete the current project. So you will use some proven technique such as 'crashing' to complete the current project quickly and win the next opportunity.

Grab the opportunities with the help of yours partner

Sharing the Opportunities

Sharing the opportunities means when you are not capable of grabbing the opportunity alone, it’s better to partner with someone else who is capable. Thus, by combining the capabilities of both of you can win the opportunity.

For example, being a small organization you cannot bid for a big industrial project. But, you can still bid for the same by partnering with another organization. Thus, you are still in the race to winning the contract.

Accepting the Opportunities

This is an idle strategy where you need not do anything. Just wait for the opportunity to happen and cash the benefits out of it. For example, being a contractor in construction works, when the prices of cement bags or other raw material fall down, you just grab the benefit which definitely impacts on your budget positively.

Finally, whatever the nature of your project, there are risks associated with it. The risks can have positive or negative impacts on your projects. So, you should know the various ways to reduce the impacts of the negative risks and at the same time plan to enhance the positive risk for the benefit of your project.

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Author

Kishor Mohanty 5 months agofrom Hyderabad

Thanks @Tamara. Well said, risks are not only seen on professional projects, it can be everywhere. And to deal with that the techniques are almost same, can be applied anywhere to minimize the risk and encash the opportunities out of that.

Tamara Moore 5 months ago

This is a very useful, intelligent, and well-written article that can really be utilized in many areas of life. Thank you!